German economy shrinks 0.5pc as euro crisis weighs

The German economy contracted by a larger-than-expected 0.5 percent in the
final quarter of 2012, a preliminary estimate from the Federal Statistics
office showed on Tuesday, as the euro zone crisis weighed on exports and
corporate investment.

Germany has been a pillar of strength in the eurozone debt crisis but its economy slowed in the second half of last year.Photo: Alamy

The weak fourth quarter pushed overall growth for the year down to 0.7pc, a sharp slowdown from the 3pc registered in 2011 and a post-reunification record of 4.2 pc in 2010. The 2012 figure was below a Reuters consensus forecast for a growth rate of 0.8pc.

"The German economy might not be an island of happiness any longer but it remains at least an island of growth in a still recessionary eurozone sea," said Carsten Brzeski, an economist at ING.

Germany has been a pillar of strength in the eurozone debt crisis but its economy slowed in the second half of last year.

German exports and imports slid in November and industry orders fell more than expected, compounding expectations that the eurozone debt crisis is hitting the German economy with full force.

For the full year, export growth slowed to 4.1pc from 7.8pc in 2011, while equipment investment fell by 4.4pc, the Statistics Office said.

"In the previous two years, GDP growth had been much larger but that was due to a catching-up process following the worldwide economic crisis of 2009," the Office said in a statement.

Most economists expect Germany to bounce back from the weak fourth quarter in the months ahead, but 2013 is still shaping up as another year of meagre growth.

The government is due to publish an estimate for 2013 growth on Wednesday. Handelsblatt newspaper reported on Tuesday that it would halve its forecast to 0.5pc from 1pc.

Andreas Scheuerle at Dekabank called the 2012 figure "disappointing".

"But if you take the tough environment in the euro zone and weakness in growth markets into account, one can be quite pleased after all."

German companies have sent out mixed signals of late. Deutsche Post has aid it expects that 2013 will "not be easy" as a weak global economy weighs on demand for express delivery and other logistics services.

Luxury carmaker BMW has said its home market may weaken in 2013.

There are however signs that Europe's largest economy, may emerge quickly from a year-end contraction.

The country's private sector expanded for the first time in eight months in December and business morale climbed in December to the highest level in five months on an improved outlook, which points to Germany being able to avoid a recession - defined as two consecutive quarters of contraction.

For the first time since 2007, the Statistics Office said, Germany public sector budget swung to a surplus, at 0.1pc of GDP.